Wall Street to GOP: Are you nuts?

Senior Republicans believe they will be on stronger political ground if they allow a relatively clean bill funding the government to reach the president’s desk and instead use the debt-hike battle to gut Obamacare.

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Debt ceiling: By the numbers

Political analysts and market experts say this strategy could wind up doing lasting damage to both the United States economy and the GOP’s national political standing.

The fundamental flaw: There is no scenario under which the GOP is going to achieve its main stated goal, delaying the Affordable Care Act, through a debt limit showdown. The White House and Senate Democrats would never agree to such a demand. And senior administration officials say privately that their public refusal to negotiate over the debt limit is not simply a political ploy they will inevitably have to cast aside. Perhaps aware of the risks, House GOP leadership is now considering postponing a vote on a debt limit that includes an Obamacare delay to see what they can get out of a continuing resolution that funds the government past Sept. 30.

A brief shutdown would have some negative economic effects and could create political blowback on the GOP. But it would cause far less long-term damage than a default, which would likely send interest rates sky-rocketing, crush the stock market, devastate business and consumer confidence, and probably send the nation’s economy hurtling back into recession if not depression.

“The economic damage created by a government shutdown doesn’t compare to that of breaching the debt limit,” said Mark Zandi of Moody’s Analytics. “Breaching the limit would be an economic disaster. Perhaps Republicans feel that gives the threat of breaching the limit more leverage. Or perhaps some don’t believe the impact of breaching the limit would be that bad. But to be frank, I’m as perplexed as you are. Fortunately, I’m not asked for advice on political strategy.”

In the best-case scenario, investors would come to believe that “we have totally incompetent politicians who are unwilling to pay the bills when they are due,” said Michael Obuchowski of North Shore Asset Management.

White House aides say enshrining the debt limit as a political weapon under which an opposition party can extract major concessions would be a highly corrosive precedent that would make an eventual default a near-certainty when future negotiations fail. White House and Treasury officials say any further negotiations over the debt limit would introduce a level of risk around United States Treasury bonds where none previously existed, ultimately raising borrowing costs for both the government and average citizens for decades to come — if not permanently.

“We can’t do it, not just because of the issues at stake now but for what it would mean generations from now,” one senior administration official said recently.

White House senior adviser Dan Pfeiffer on Thursday described House Republicans as suicide bombers. “What we’re not for is negotiating with people with a bomb strapped to their chest,” Pfeiffer told CNN’s Jake Tapper. “We’re not going to do that.”

Republicans would almost certainly have to either give in on their Obamacare demands — disappointing their most ardent tea party supporters — or be blamed for forcing a historic default or near-default over a quixotic quest to block a duly enacted law.